The government is a major consumer. If you think about it, there isn’t much that government agencies don’t buy.
From highly technical intelligence services to basics like food and lawn service, federal, state and local agencies require the same products and supplies as any large business and then some.
You can take advantage of the volume purchases and tap into this viable sector, but success will depend on the way you position and market your products and/or services and on a thorough understanding of how government agencies contract with private businesses.
“There is a huge market opportunity for private businesses, but many are reluctant to enter the governmental marketplace,” says David E. Shaffer, a director in the Audit and Accounting group at Kreischer Miller in Horsham, Pa., who specializes in government contracting. “Business owners think, ‘Too much red tape,’ or ‘It takes too long to get paid.’ Or, they assume that they cannot compete with larger companies.”
The truth is that if you can provide good, quality services and products at a fair price, plus abide by government contracting requirements, the government’s business can help expand your business.
“We have government contractor clients growing at 15 to 20 percent a year,” Shaffer says.
Smart Business turned to Shaffer for a primer on the country’s largest customer and how to position your business to successfully win government contracts.
Why should a business target the government as a potential customer?
First, government spending is expected to exceed $4,877 billion during the fiscal year that ended Sept. 30, 2007. Federal expenditures comprise 55 percent of this amount, with the remainder being spent by state and local governments. The numbers alone illustrate a significant market opportunity for businesses that provide services and products that the government needs.
The good news is that the government buys a lot of goods and services. So once a business learns the rules and regulations and understands the sales cycle which is exponentially longer than that of a typical customer it will have an edge over its competitors. Once a business learns the rules of contracting and establishes government references, it can expand into other government agencies. Governments like to hire vendors who already understand the unique business environment, so your products and services become more attractive to other agencies once you know the rules.
Larger government contractors have been pushing up the multiples paid for privately held businesses doing business with the government, and larger businesses typically get higher multiples when they are sold.
Finally, government entities have good credit. Businesses can rely on being paid within 45 days or sooner, if you prepare invoices according to the government parameters.
How do you prepare to earn government business?
The people you employ will open the door for potential contracts. If you are serious about working with the government, establish a business plan and consider recruiting personnel experienced in selling to the targeted agency. Like most customers, federal agencies deal with people they feel comfortable with and know will deliver quality work and products. Also, if you are targeting a contract in the intelligence field, such as an agency that needs to outsource ‘top secret’ work, your employees will need special clearances that can only be obtained from the government and can take considerable time to acquire.
You’ll want to develop a business plan that highlights the special products, skills or services that would interest government agencies. How is your business different from competitors? Can your business obtain small business certifications that may get preferential treatment? The government will want a fair price, so consider how you can deliver this and still separate yourself from other providers. If you’re a service provider, the government may inspect your accounting records to determine that you are properly allocating costs since many contracts are based on costs incurred.
Next, target specific agencies and learn their procurement processes and terms. Study historical contracts and budgets. Who are the program managers and current providers? Find out about new initiatives, rules and regulations that govern their procurement opportunities. Meet with government program managers to learn about their needs; but before you do this, know the rules. You can find them in the Federal Acquisition Regulations, and most agencies also have their own rules.
How can a business get its foot in the door?
Speak to current providers to see if there are opportunities to partner with them as a subcontractor. Also, be willing to accept smaller assignments until you prove the quality of your work and earn the trust of the government agency. You may need to dedicate resources specifically to managing government work. Most of all, approach the work with patience. The sales process may range from six to 18 months, and it may take you longer to really learn the ropes. But once you do, you can sell a great volume to the government because it buys so much.
Working with the government may not be an easy process at first there is a learning curve with most new target markets. But once you ‘crack the code,’ you’ll have a competitive advantage over other companies, and government agencies will continue to give you business.
DAVID E. SHAFFER is a director in the Auditing and Accounting group of Kreischer Miller and specializes in government contracting. Reach him at (215) 441-4600 or email@example.com.